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Middle East and Central Asia > Saudi Arabia

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Cover IMF Staff Country Reports
Saudi Arabia: Financial Sector Assessment Program-Financial System Stability Assessment
International Monetary Fund. Monetary and Capital Markets Department
This paper highlights Saudi Arabia’s Financial System Stability Assessment as part of Financial Sector Assessment Program (FSAP). The FSAP took place against the backdrop of a robust economy driven by an ambitious state-led transformation agenda to accelerate Saudi Arabia’s economic diversification (Vision 2030). The Kingdom’s sovereign wealth fund plays a key role in implementing and funding the economic transformation. At present, financial sector risks from the rapid economic transformation appear contained. Banks are well-capitalized, profitable and appear resilient to severe macroeconomic shocks. Banks’ capacity to manage liquidity stress scenarios is generally good, although funding concentration is sizable. The authorities have made commendable efforts to mitigate risks from the rapidly growing credit and real estate market, but significant data gaps create challenges for systemic risk monitoring. The time is right to strengthen systemic risk monitoring and the legal, institutional, and operational frameworks in support of financial stability going forward.
Keywords:
B. bank stress tests; liquidity stress scenario; liquidation framework; coverage ratio; mission chief World Bank; World Bank FSAP team member; Financial sector stability; Anti-money laundering and combating the financing of terrorism (AML/CFT); Macroprudential policy; Commercial banks; Global
Cover Policy Papers
The IMF’s Annual Macroprudential Policy Survey— Objectives, Design, and Country Responses
International Monetary Fund
As use of macroprudential policy tools is growing, the IMF has initiated an annual survey on macroprudential policy with its membership. The resulting new database provides information on policy measures taken by IMF member countries as well as on the institutional arrangements in place to support macroprudential policy. This paper provides detail on the design of the survey and a description of the results from the first edition of the survey, based on responses received from 141 jurisdictions. It reviews institutional arrangements in place across the membership, provides an initial description of the types of measures reported across regions, and describes recent changes in macroprudential policy settings reported by member countries.
Keywords:
PP; country; country response; nonbank; country submission; liquidity; countries indicating; multilateral analysis; countries in the Western Hemisphere; Macroprudential policy; Macroprudential policy instruments; Institutional arrangements for revenue administration; Systemic risk; Global; Western Hemisphere; Africa; Asia and Pacific; Europe
Cover IMF Staff Country Reports
Saudi Arabia: Financial System Stability Assessment
International Monetary Fund. Monetary and Capital Markets Department
The FSAP took place during the aftermath of a major shock for the Saudi economy, whose repercussions were still being felt despite a decisive policy response. During 2015–16, the decline in oil prices led to a sharp fall in oil revenues. Government spending was cut and payments to some suppliers were delayed, adding to the contractionary effects on the economy. Combined with sharply increased domestic government borrowing, these developments contributed to a tightening in banking system liquidity. SAMA injected liquidity and relaxed the prudential ratio on banks’ lending to deposits. These measures were effective and, by end-2016, as government arrears were being repaid, the situation in the banking system had started to normalize.
Keywords:
ISCR; CR; banking system; price index; exchange rate; financial condition; risk profile
Cover IMF Staff Country Reports
Saudi Arabia: Financial System Stability Assessment
International Monetary Fund. Monetary and Capital Markets Department
This paper assesses the stability of Saudi Arabia’s financial system as a whole. Banks—the core of the Saudi financial system—remain liquid and resilient. Stress tests show that most banks, including all systemically important banks, would be able to continue operating and meeting regulatory capital requirements in the event of additional severe economic shocks, characterized by oil prices falling substantially below current levels. Despite the recent liquidity challenges, all banks would also be able to cope with additional adverse liquidity shocks. The authorities’ ambitious agenda for improving macro- and microprudential financial sector oversight should be fully implemented and, in some cases, enhanced and further refined.
Keywords:
ISCR; CR; banking system; price index; exchange rate; financial condition; risk profile; Sama manage liquidity; commercial bank; liquidity management framework; repo facility; EWS analysis; balance sheet composition; liquidity condition; funding strategy; asset quality; Sama strategy document; control department; Liquidity; Commercial banks; Liquidity management; Macroprudential policy; Financial sector stability; Global
Cover IMF Staff Country Reports
Saudi Arabia: Selected Issues
International Monetary Fund. Middle East and Central Asia Dept.
This Selected Issues paper assesses the importance of oil and interest rate spillovers for Saudi Arabia. Oil prices have fallen by more than 40 percent since mid-2014 while the Federal Reserve is expected in the coming months to begin raising its policy rate at the beginning of a gradual tightening cycle. Given the importance of oil to the economy and the peg of the riyal to the U.S. dollar, these are two key developments for Saudi Arabia. Although a temporary drop in oil prices would likely have little effect on the economy and banks given the financial cushions that have been built-up, a longer-lasting period of low oil prices would have a more significant impact.
Keywords:
ISCR; CR; price; oil price; private sector; government spending; equity price; energy price; NPL ratio; price reform; Energy prices; Oil prices; Fuel prices; Labor markets; Electricity; Global
Cover IMF Staff Country Reports
Saudi Arabia: Selected Issues
International Monetary Fund. Middle East and Central Asia Dept.
Saudi Arabia: Selected Issues
Keywords:
ISCR; CR; price; oil price; private sector; government spending
Cover Policy Papers
Gulf Cooperation Council (GCC)—Oil Prices, Financial Stability, and the Use of Countercyclical Macroprudential Policies in the GCC
International Monetary Fund
Economic and financial developments in the GCC economies are interwoven with oil price movements. GCC economies are highly dependent on oil and gas exports. Oil price upturns lead to higher oil revenues, stronger fiscal and external positions, and higher government spending. This boosts corporate profitability and equity prices and strengthens bank balance sheets, but can also lead to the buildup of systemic vulnerabilities in the financial sector. Banks in the GCC are well-capitalized, liquid, and profitable at present, and well-positioned to manage structural systemic risks. However, oil-macro-financial linkages mean that asset quality and liquidity in the financial system may deteriorate in a low oil price environment and financial sector stress may emerge. The scope for amplification of oil price shocks through the financial sector suggests a role for a countercyclical approach to macroprudential policies. Countercyclical macroprudential policy can prove useful to reduce the buildup of systemic risks in the financial sector during upswings, and to cushion against disruption to financial services during periods of financial sector stress. The GCC countries have considerable experience with implementing a wide range of macroprudential policies, but these policies have not generally been adjusted through the cycle. GCC central banks implemented several macroprudential measures before the global financial crisis and have continued to enhance their macroprudential frameworks and toolkits to limit systemic financial sector risks. Although there is some evidence of macroprudential tools being adjusted in a countercyclical way, most of the tools have not been adjusted over the financial cycle. Further enhancements to the GCC macroprudential framework are needed to support the countercyclical use of these policies. A comprehensive and established framework, supported by strong institutional capacity, is essential for countercyclical macroprudential policies. This framework should provide clear assignment of responsibilities and guidance on how policies will be implemented to maintain financial stability and manage systemic risks over the financial cycle. Addressing data gaps and the further development of reliable early warning indicators in signaling potential systemic stress are needed to help guide the countercyclical use of a broad set of macroprudential policies. Expanding the countercyclical policy toolkit and its coverage can help address emerging financial sector risks. The implementation of countercyclical capital buffers and dynamic loan loss provisions could boost resilience in line with systemic risks faced in GCC economies. At the same time, using existing macroprudential policies countercyclically would prove useful to address emerging financial sector risks in a more targeted way. Expanding the coverage of macroprudential tools to nonbanks can help boost effectiveness by reducing leakages.
Keywords:
PP; oil price; GCC country; GCC bank; GCC economy; GCC business cycle; financial system; Oil prices; Macroprudential policy; Macroprudential policy instruments; Financial sector risk; Nonperforming loans; Global
Cover Staff Discussion Notes
Macroprudential Policy in the GCC Countries
Ms. Zsofia Arvai
,
Mr. Ananthakrishnan Prasad
, and
Mr. Kentaro Katayama
As undiversified commodity exporters, GCC economies are prone to pro-cyclical systemic risk in the financial system. During periods of high hydrocarbon prices, favorable economic prospects make the financial sector keen to lend, leading to higher domestic credit growth and easier access to external financing. Fiscal policy is a very important tool for macroeconomic management, but due to the significant time lags and expenditure rigidities, it has not been a flexible enough tool to prevent credit booms and the build-up of systemic risk in the GCC. This, together with limited monetary policy independence because of the pegged exchange rate, means that macro-prudential policy has a particularly important role in limiting systemic risk in the financial system. This importance is reinforced by the underdeveloped financial markets in the region that provide limited risk management tools and shortcomings in crisis resolution frameworks. This paper will discuss the importance of macro-prudential policy in the GCC countries, look at the experience with macro-prudential policies in the boom/bust cycle in the second half of the 2000s, and use the broad frameworks being developed in the Fund and elsewhere to discuss ways existing frameworks and policy toolkits in the region can be strengthened given the characteristics of the GCC economies.
Keywords:
SDN; GCC country; GCC Financial; lending; bank; market; Macroprudential policy; systemic risk; credit; financial stability; GCC economy; GCC regulator; GCC bank; GCC authorities; fixed income; Financial sector stability; Macroprudential policy instruments; Global
Cover IMF Staff Country Reports
United Arab Emirates: Selected Issues
International Monetary Fund. Middle East and Central Asia Dept.
This Selected Issues paper on the United Arab Emirates highlights the macroprudential policies. The fixed exchange rate and persistent structural liquidity surpluses in upswings add to the difficulties in managing aggregate demand contain credit expansion. The exchange rate peg and the open capital account allow limited room to deviate from the U.S. interest rates. Monetary policy is further constrained by limited liquidity management capabilities, as liquidity forecasting is in its infancy, and central banks liquidity management relies primarily on reserve requirements and standing facilities for liquidity absorption. The lack of a local currency fixed-income market raises the prominence of real estate as an asset class for investment and the exposure of the banking system to the real estate sector.
Keywords:
ISCR; CR; company; GRE; Yes; Dubai; GCC country; GRE debt; debt management; major GRE restructuring; Dubai GRE; Dubai debt restructuring deal; CBU regulation; GRE risk; GCC economy; Dubai World restructuring; Dubai government; Macroprudential policy; Financial sector stability; Corporate governance; Systemic risk; Debt restructuring; Global; Middle East
Cover IMF Working Papers
The Macroprudential Framework: Policy Responsiveness and Institutional Arrangements
Cheng Hoon Lim
,
Mr. Ivo Krznar
,
Mr. Fabian Lipinsky
,
Mr. Akira Otani
, and
Mr. Xiaoyong Wu
This paper gauges if, and how, institutional arrangements are correlated with the use of macroprudential policy instruments. Using data from 39 countries, the paper evaluates policy response time in various types of institutional arrangements for macroprudential policy and finds that the macroprudential framework that gives the central bank an important role is associated with more timely use of macroprudential policy instruments. Policymakers may also tend to use macroprudential instruments more quickly if the ability to conduct monetary policy is somehow constrained. This finding points to the importance of coordination between macroprudential and monetary policy.
Keywords:
WP; central bank; macroprudential; institutions; instruments; systemic risk; credit; interest rate; coordination body; government index; banking sector; central bank involvement; cross-agency policy coordination; risk tolerance; Macroprudential policy; Institutional arrangements for revenue administration; Macroprudential policy instruments; Financial sector stability; Financial sector; Middle East and Central Asia; Western Hemisphere; Global; Europe; Africa